U.S. antitrust regulators start to rein in iTunes

NEW YORK – The Department of Justice has launched a bid to more tightly regulate Apple’s wildly lucrative iTunes storefront, after the tech giant lost a price-fixing case.

DOJ officials urged a court to order Apple to cut ties with publishers with which it was found guilty of an e-book price fixing scheme.

And the order went further, prohibiting the maker of the iPhone from seeking to drive up prices by signing “agreements with suppliers of e-books, music, movies, television shows or other content.”

Apple condemned the DOJ proposal in a brief filed with the court Friday.

“Plaintiffs’ proposed injunction is a draconian and punitive intrusion into Apple’s business, wildly out of proportion to any adjudicated wrongdoing or potential harm,” Apple attorneys argued in the legal brief.

The unprecedented injunction being sought by the DOJ will empower the government to regulate Apple’s business and set up a compliance regime the company lambasted as “vague and intrusive.”

The DOJ’s proposal is essentially telling Apple “to get out of the e-book business,” said Gartner analyst Van Baker.

“It is basically putting a stake through a portion of Apple’s business, and I confess to being surprised by that,” he continued.

“It strikes me as a pretty heavy-handed solution to the issue.”

Last month, a U.S. district court in New York found Apple guilty of conspiring with publishers to fix book prices for readers using its iPad and iPhone devices.

On Friday, Justice Department officials submitted to the court a list of “remedies” that included making Apple cut existing ties to the publishers and make it easier for its rivals to sell books on its platforms.

The proposed settlement will see Apple end its current agreements with five U.S.-based publishers: Hachette Book Group, HarperCollins, Macmillan, Penguin and Simon & Schuster.

The tech firm will promise not to enter new contracts with the five to limit price competition in the next five years, and would allow other e-book retailers to link to their products from iPad and iPhone apps for two years.

Apple argued that legal settlements signed by publishers already address antitrust concerns and therefore the DOJ remedies are unwarranted.

The fiercely private and independent-minded California company would be ordered to pay for an external monitor who will peer into its affairs to confirm compliance with antitrust laws.

“Apple is like the person who always looks put together out in public and you don’t get to see what it takes to do that under the covers,” said Forrester analyst Frank Gillett. “The idea of a monitor is tough for them, but they are going to have to find some way to deal with it.”

The DOJ lodged a civil antitrust lawsuit against Apple and the publishers in April last year.

It has since reached settlements with four of the publishers and has an agreement with Macmillan that is yet to be approved by the court.

The DOJ’s proposed Apple settlement still has to be approved by a federal judge.

“The court found that Apple’s illegal conduct deprived consumers of the benefits of e-book price competition and forced them to pay substantially higher prices,” said antitrust division Assistant Attorney General Bill Baer.

“Under the department’s proposed order, Apple’s illegal conduct will cease and Apple and its senior executives will be prevented from conspiring to thwart competition in the future.”

Under the existing settlements, the publishers agreed to end any agreements they have with retailers like Apple to prevent them from discounting titles sold through their platforms.

Through its devices and software, Apple allows readers to buy electronic versions of books online and download them to personal digital libraries.

In this it competes with other retailers such as Amazon and Barnes & Noble, which sell e-books through online apps on mobile devices, using operating systems such as Microsoft’s Windows or Google’s Android.

The settlement will oblige Apple to allow retailers to “provide links from their e-book apps to their e-bookstores, allowing customers who purchase and read e-books on their iPads and iPhones easily to compare Apple’s prices with those of its competitors.”

Apple is proud of its well-managed “ecosystem” in which it controls everything from the design of its devices to the operating systems and even which apps are allowed on gadgets.

Apple chief Tim Cook has repeatedly said that the company is devoted to giving people the best experiences on top-quality creations.

“For Apple, this will feel like losing control of the customer experience,” said Gillett.

“Apple is so used to being the underdog that it is unfamiliar to them that others would see their focus on customer experience and great products not as just an unfriendly, closed system but as a monopoly.”

Forcing Apple to cut ties with publishers could wind up handing the e-book market to Kindle-maker Amazon.com, according to analysts.